MarketsNov 1, 2022
Small-Cap Quality Stocks: OTC Markets Group
Niche Finance
Victor Lei
Discover
In September, Quality Compounding released a post titled “20 undervalued small cap quality stocks.”
It’s a really good starting point for small-cap quality stocks.
One stock, in particular, caught our eyes: OTC Markets Group (OTC:OTCM) — the operator of several over-the-counter exchanges and data providers.
Some background info: For US investors, many of the major stocks you trade are likely on the New York Stock Exchange or NASDAQ.
Popular trading platforms like Robinhood and Public don’t offer trading of OTC stocks. But there are certainly many hidden gems in the OTC market.
The market has also become increasingly popular among foreign firms — with major international companies like Volkswagen (OTC:VWAGY) and Tencent (OTC:TCEHY) listed here.
In recent years, more and more foreign companies are listing in the US OTC markets — given the easy access to US investors. The number of retail investors holding OTC stocks has also grown.
Above is a list of the exchanges operated by OTC Markets Group and how listings have grown in the past five quarters.
This brings us back to OTC Markets Group — which provides the tech and services to list on the exchange and sells the market data.
1/ OTC Markets Group is oozing profits. OTC is a well-run, highly efficient business with a 33.5% profit margin (last 12 months).
Since 2010, they’ve more than tripled their sales and increased their net profit margins from 11.3% to 33.6% in 2021. What are they doing with all that cash? Paying back shareholders…
2/ Strong historical returns. gave investors a 180% total return (incl. dividends) over the past five years (23% compounded annually) — compared to 63% for the S&P 500 (10% compounded annually).
For each of the past eight years, consistently paid out a special dividend — on top of their regular dividend. The combined dividend yield over the last 12 months was ~3.8%
